The European Commission (“Commission”) has announced two formal proceedings to investigate potential competition law violations by energy companies in Eastern Europe. The Commission is investigating whether Bulgarian Energy Holding (“BEH”) may be abusing a dominant position through the possible use by BEH of provisions in its wholesale supply contracts prescribing that supplied electricity may be resold only within Bulgaria.

In a separate abuse of dominance probe, the Commission is investigating whether the Romanian Power Exchange may be discriminating against foreign companies on the basis of nationality and deterring them from entering the Romanian electricity wholesale market.

Launch of Proceedings

The launch of proceedings is a procedural stage in a Commission inquiry that is necessary for the adoption of a final decision finding that there is an infringement of EU competition law.

The Commission will typically initiate proceedings where its initial analysis indicates that further inquiry is necessary and the scope of an investigation can be sufficiently defined. However, the launch of proceedings does not prevent the Commission from broadening the scope of an investigation at a later stage. Nor does it signify that a violation of EU competition law has occurred.

Once proceedings are launched, the Commission typically treats a case as a priority. National competition authorities in the EU are relieved of their ability to apply EU competition law (specifically, Articles 101 and 102 Treaty on the Functioning of the EU (“TFEU”) dealing with restrictive agreements and abuse of a dominant position respectively) to a matter that is the subject of a Commission investigation. National courts must also avoid taking decisions that would “conflict” with any decision contemplated by the Commission in the proceedings that it has initiated.

Territorial Restrictions in Bulgarian Wholesale Electricity Markets

BEH is a state-owned energy conglomerate that was created in 2008 through a combination of the Bulgarian National Electric Co., natural gas and coal producing companies, and various other energy companies.

The focus of the Commission’s investigation launched on 3 December is on certain provisions in electricity supply agreements entered into by BEH subsidiaries. The Commission suspects that these agreements may limit the freedom of counterparties to resell electricity, since they specify that electricity may be resold only within Bulgaria and not exported. The Commission is concerned that the provisions are likely to restrict competition on wholesale markets in Bulgaria and in neighbouring member states.

Discrimination in Romanian Electricity Market

The Commission’s second abuse of dominance probe into the energy sector in a month was launched on 11 December. The Commission is investigating whether OPCOM (operator of the only power exchange in Romania) and its parent company Transelectrica (Romania’s transmission system operator) may be abusing a dominant position.

The Commission is focused on a OPCOM requirement that participants in the spot markets on the power exchange have a valid Romanian VAT registration and be established in Romania. The Commission raised concerns that this practice may amount to unlawful discrimination on the grounds of nationality and place of establishment. The Commission is inquiring whether the practice may raise the costs of foreign traders seeking to enter and expand on the Romanian power exchange thereby reducing market efficiency and liquidity.

The investigation follows unannounced inspection visits (dawn raids) in February 2012 where Commission officials inspected premises of companies active in managing power exchanges in a number of member states. The Commission has not confirmed whether the proceedings against OPCOM and Transelectrica are as a result of those raids.

Conclusion

The Commission’s launch of proceedings in these two cases indicates that the Commission’s competition law scrutiny of energy markets and in Eastern Europe in particular shows no sign of relenting. A number of themes emerge:

the Commission has long maintained an interest in territorial restrictions that prevent a wholesale buyer from selling energy outside a specific geographic area;

the Commission has shown that it will use dawn raids in abuse of dominance cases as well as cases involving cartels;

the Commission favours inquiries under Article 102 TFEU (abuse of dominance) rather than Article 101 TFEU (restrictive agreements); and

companies operating in the energy sector will want to assess the restrictions in their sale and purchase contracts for compatibility with EU competition law.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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